With the proposed Real Estate Regulatory Bill, where developer are expected to keep considerable portion of sales in escrow account for majority of construction period, finance cost for developers is expected to increase. This, along with increase in cost of construction and the already challenging economic scenario, is expected to affect profit margins of developers. In such a scenario, the real estate industry was obviously hoping for relief from RBI by way of reduction in financing cost.
In the current monetary policy, RBI has increased the repo rate by 25 bps, which will increase the borrowing cost. However, with reduction of MSF by 75 bps and reduction of minimum daily maintenance of CRR from 99% to 95%, it has relaxed tightening norms. While the real estate industry has reason to be somewhat disappointed on the increase in borrowing cost, the RBI has made provisions for increased liquidity in the system. Considering the current economic situation, I believe that the new RBI governor has acted suitably with this monetary policy.